Having recently completed a dramatic readthrough of Console Wars and released the first version of errata for The Ultimate History of Video Games, a shared topic has come to mind: Sega of America and the tenure of Tom Kalinske. By far one of the most well-known, dramatic narratives in all of video game history, Steven Kent first solidified the story of the courageous American executive who battled Nintendo and took Sega to the height of cultural relevance. Blake Harris then made this struggle the heart of his own semi-non-fictional narrative, essentially serving as a biography of Kalinske in the process.
More than the varied factors which allowed Sega and Kalinkse to rise in the North American console market, there’s ample interest in the subject of the “fall”: How could such a great thing for Sega fall apart so quickly? Kalinske – in his multitude of interviews – has never been shy about giving his take on the matter. He believes that his decision-making in America was gradually hamstrung by executive interference from Japan which forced him to make decisions he would never make, ultimately destroying the brand Sega of America had cultivated throughout his tenure. Many of his colleagues in marketing and sales at SoA have seemingly backed him up on this perspective, hoisting responsibility onto incompatible business practices between Japan and America – perhaps rooted in jealousy by Sega executives of the success experienced by their colleagues, ultimately leading to self-destruction.
Any explanation of events that relies on a party committing self-sabotage is one that certainly requires more than an average amount of scrutiny. However, it has been easy to believe the narrative of Japan’s complete fault due to lacking access to their perspective. Sega’s head Hayao Nakayama, after being ousted in 1997, has rarely gone on the record about his decision-making in this period. It’s been easy to take the word of Kalinske and others at Sega of America that Sega was unreasonable and made decisions that seemed to have no logical explanation in the wake of SoA’s success.
Recently, English-speaking historians have started to gain that perspective. Most prominent is the work of John Harrison of Mega Drive Shock, who has translated a plethora of articles and interviews from Japanese relating to Sega’s business. Perspectives from people like Shoichiro Irimajiri – who took over Sega after Nakayama – about the distressed state of Sega of America’s financials and contemporaneous press articles describing larger business trends in the mid to late 1990s demonstrate there was more than a little reason for a change in business tactics despite the American success with console market share. These abstract issues were confirmed with the posting of the Fiscal 1997 Sega of America review document which definitively demonstrated the vast amounts of console inventory SoA was unable to sell from the 16-bit era – something neither Kalinske nor anybody else at the company had previously acknowledged as a possible factor in their decline.
Rather than attempting to litigate all the issues surrounding Sega in the 90s, this is more of an examination about the beliefs surrounding the divide between Japanese and American business. With Sega as a case study, we can examine why these understandings persist and how to view the characters involved in this particular story in a more nuanced way.
America’s relationship with Japanese business has been strained since the 1950s. After a wave of technological insight and economic development enabled Japan to dominate production of steel, automobiles, and consumer electronics, American businessmen have grudgingly wrestled with their East Asian brethren’s subtle way of deal making. Though today you can read all about the sociological differences setting Japanese business apart, back then this uncharted territory led to frequent culture clashes which fed a growing anxiety of distrust between American and Japanese businesses. This was eventually borne out in international trade relations, including the strengthening of the yen which severely undermined Sega’s international success in the mid-90s.
It is undeniable that American subsidiaries of Japanese companies have had conflicts with their parent companies over decision-making and control. In video games, we can take the example of Capcom USA. American head Joe Morici started local game development of both computer and console games, initially of ports but then hoping to move into original games. Initially, this move was hidden from the Japanese office, and once Capcom found out about the unsanctioned California Raisins NES game, they completely restricted any further attempts at Capcom USA’s independent development.
Nintendo of America was able to exert control over the fortunes of its parent company for a brief time – but possibly with long-term consequences. The partnership with Silicon Graphics Inc. which created the Nintendo 64 is not a deal that Nintendo Co. Ltd. likely would have ever made. In retrospect, head honcho Hiroshi Yamauchi felt that Nintendo’s focus on hardware capability was the wrong move. Historian Alex Smith speculates that NoA’s push in this direction under Minoru Arakawa cut him out of the succession plan when Yamauchi retired.
Sega Enterprises Ltd. and Sega of America, by comparison, had a far more fluid relationship. In the days of the Master System, there was a seeming lack of trust over the capability of the American staff – which led to Tonka assuming the sales and marketing responsibility of the console. In the era of the Genesis though, Sega of America was handed a type of freedom rarely seen at subsidiary companies. In addition to product control similar to Nintendo of America, they were allowed to set up native game development under Ken Balthaser, spend on celebrity licenses to define a new marketing strategy, and drove an image for Sega which was eventually adopted globally.
When Tom Kalinske was propositioned to take over Sega of America in 1990, he’s admitted to having many reservations borne of his perception of Japanese business. He believed that only Hayao Nakyama’s will and Western attitude kept Kalinske from having to be a mouthpiece for Japan. But Sega had always been a company melding trans-Pacific values. Throughout their history, the Japanese office had been defined by as well as actively reached out to Western countries (both in the U.S. and Europe) to learn from them. It wasn’t solely the Grace of Nakayama that held the entire thing from falling apart. The Japanese executives of Sega went on record saying they were pleased with the American office’s success, even if they did initially resist the unfamiliar tactics SoA used to gain market share.
The fundamental issue was that Sega was not a cash rich company like Nintendo. And they were multi-faceted – not merely involved in home video games. Their coin-op business was also highly successful on both sides of the Pacific and proved a critical asset for the home business. Every competitive move made by Sega of America – cutting the price of the console, making deals with retailers, initiating nationwide advertising campaigns – cut into a limited spending pool. Sega Europe (originally Sega/Vrigin Mastertronic) – having the advantage of not needing to dislodge Nintendo – managed to achieve a similar market dominance by spending far less money than SoA.
Japan actively shielded Sega of America from just how much they were straining the whole organization’s resources. While the coin-op side of Sega was catching up with its competitors in both technology and building large scale amusement locations like Joypolis, Nakayama was telling Kalinske that money was no obstacle. They never informed the American office about their non-consolidated financial practices; that in turn led to oversupply of Genesis consoles in the U.S. being seen as a literal asset – not a liability.
This isolation from other parts of the business manifested in other ways too. Sega of America had basically no marketing coordination with Sega Enterprises USA – the American arcade branch. Instead of building synergy, they repeatedly tripped over each other in their marketing and strategy even though arcade ports were core to the early success and cultural relevance of the Genesis. SoA acting so independently and hoping the rest of Sega would follow was not a sign of strong leadership for an organization that was much bigger than themselves.
Why Kalinske believed he had such latitude to direct Sega as a whole likely comes down to a fundamentally meritocratic philosophy of business. He was never stingy about promotions at Sega of America and was respected by his immediate colleagues for always having a vision of success. This drive did enable SoA to achieve its goals and create a lasting cultural impact which has remained ever since; that should not be overshadowed or downplayed.
Yet those successes are continually undermined by the frustration expressed by Sega of America staff that they weren’t allowed to do more. Kalinske today gripes that SoA was nothing more than a marketing company, even though they built an entire apparatus of game development studios – including having direct oversight of their flagship Sonic series through Sega Technical Institute. While there were certainly many failures on the development front, few of those have anything to do with interference from Japan (even the famous story about Sonic X-Treme is likely far more complicated).
What has hung over the narrative the most is the attempt by Kalinske to drive Sega’s hardware after the Genesis, rather than what became the Saturn. The refusal to go with the plans hashed out with Sony and later SGI is treated by Console Wars – both the book and the documentary – as the most boneheaded, unjustifiable thing Sega Enterprises Ltd. ever did.
This reeks of backwards justification. Beyond a vague explanation of Joe Miller (who was probably not even spoken to for the book) claiming the Saturn hardware wasn’t very good (as if SoA was pushing to only create 3D games), there is no reason to believe that everybody in America understood the Saturn was going to be a failure. That Sega should have obviously dumped the console they were already neck deep in development of to go with Sony or SGI is an opinion not supported by the historical precedent. Kalinske refusing to take ownership of the 32X failure is a much bigger blemish on his record.
The belief of Kalinske that he should have had a stronger hand in deciding the next console’s direction likely goes back to that meritocratic philosophy. The Genesis had its greatest success in the U.S. by volume (even with the oversupply issues). It was natural – from his viewpoint – to expect to lead the next stage in market development as (he believed) he had at Mattel.
Not long after these attempts to steer the hardware in 1993, Sega stopped being able to ignore its pressing financial issues and gave less leeway for Sega of America to spend on marketing. This seems to be what led Kalinske to think he was being punished for his success – rather than being a break-even operation in a company whose losses had caught up to them. That’s not an indictment of his character, only an explanation for what he still to this day believes to be true.
Don’t mistake it: Japan is far from blameless in this mess. The very fact that Sega of America staff never seem to have known about the larger tides moving Sega is evidence of the piss poor communication skills by the parent office. Kalinske’s complaint that the SGI proposal was rejected because their chip was “too big” is a classic case of both failing to explain the actual technical issues (a larger chip meant a larger failure rate, which was a cost risk) and Japanese conflict avoidance (providing an excuse when the Saturn already fit Sega’s vision for the next few years). No amount of corporate liaisons were going to solve the fundamental issue that none of the heads of Sega were properly understanding each other. It was a Rat King of an organization pulling in different directions.
With the recent revelation from Shoichiro Irimajiri that Tom Kalinske was ousted from his position after failing to make changes at Sega of America (though Kalinske has since refuted this), some have asked whether he was the lynchpin in Sega’s exiting the console business, rather than Japanese management. As often happens, the rubber band reaction goes too far: There is no singular player or factor responsible for Sega’s business misfortunes. Not Nakayama, not Kalinske, not Irimajiri, not Bernie Stolar, not Peter Moore, not Hideki Sato. Sega even stands as being fairly remarkable for how much it held its leadership accountable for failings – though it was sometimes unfair. Neither the narrative of the wholly incompetent Sega or the masterminds undone by one fatal flaw are true.
Ink will continue to be spilled over this period in Sega history because it engenders a lot of intense emotions. Now that we need no longer rely on a single perspective, we hopefully won’t get narratives as rote as Console Wars‘ – with its practically jingoistic chauvinism – dominating the conversation. You need not agree with my perspective on the relationship between these two corners of the business world. If you do think one side is more to blame, that is an argument you can certainly make – just be prepared to bring some stronger evidence to the table than post-facto evaluations by participants in the story.
Thanks to Alex Smith for his insights and F_T_B for the banner image.
